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On 12 August 2009 the Financial Services Authority (FSA) published its final Code of Practice (the Code) on reforming remuneration practices in financial services, thereby becoming the first regulator to implement full rules in this area.

Clearly the major impact of the FSA’s guidance will be felt in financial services. However, the impact will be felt far beyond. Already remuneration committees in a range of companies are reviewing their practices against the FSA’s criteria.

The Code will initially require around 26 banks, building societies and broker dealers with significant UK regulatory capital to establish, implement and maintain remuneration policies consistent with effective risk management. Details on further application across the financial services industry are expected in October.

The FSA has stated that the new Code is designed to achieve two objectives: firstly, that boards focus more closely on ensuring that the total amount distributed by a firm is consistent with good risk management and sustainability; and secondly that individual compensation practices provide the right incentives.

Firms initially covered by the Code will also be expected to provide the FSA with a remuneration policy statement by the end of October. This will have to be signed off by remuneration committees and will enable the FSA to check compliance with the code. The FSA will also want to meet with the remuneration committee chair together with senior representation from risk and human resources to discuss the report. Non-compliant firms could face enforcement action or, ultimately, be forced to hold additional capital should they pursue risky processes.

Please follow the link here to read our briefing summarising the principles of the Code and giving our views on the recommendations and their implications. We hope you find this a useful aid to your thinking.

For more information, please contact Jon Terry or your usual PwC advisor.